I have been called "the Sam Spade of Money Management," “the Financial Watchdog” and "the Pension Detective." I was born Edward Ahmed Hamilton Siedle in Trinidad, British West Indies and grew up in Trinidad, Venezuela, Panama, Peru, England, Uganda, Egypt and the U.S. I am a former SEC attorney, former Legal Counsel and Director of Compliance to Putnam Investments. For over 20 years, I owned securities trading and investment banking firms. My firm, Benchmark Financial Services, Inc. and I have pioneered over $1 trillion in forensic investigations of the money management industry. I am a founder of the Whistleblower Forensic Opportunity Trust. I am nationally recognized as an authority on pensions and investment management matters, having testified before the Senate Banking Committee regarding the mutual fund scandals and as an expert in various Madoff and other litigations. I am an active member of the Florida Bar.

KKR Warns "Leading Fiduciaries" It's No Fiduciary

KKR’s website boasts that “leading fiduciaries around the world– including large public pension plans and agencies, corporate pension plans, financial institutions, family offices, insurance companies, endowments, foundations and funds-of-funds — have for decades invested with KKR as limited partners.”

Last year, the Oregon Investment Council approved another $250 million commitment of public pension money to KKR, its favorite money manager. KKR is the largest single manager of Oregon pension money, with some $2 billion invested. CalPERS, the massive California public fund is another “leading fiduciary” that has been a KKR longtime investor.

The firm claims its strong “returns have helped to satisfy employers’ required annual contributions, improving the retirement security of teachers, firefighters, police officers, and state and municipal employees.”

On the other hand, KKR’s prospectus and partnership offering documents prominently warn prospective limited partners (including public pensions and other would-be leading fiduciaries) of the very real risks related to the Managing Partner’s unwillingness to adhere to established fiduciary standards.

“Our partnership agreement contains various provisions modifying, restricting and eliminating the duties, including fiduciary duties (emphasis added), that might otherwise be owed by our Managing Partner. We have adopted these restrictions to allow our Managing Partner or its affiliates to engage in transactions with us that would otherwise be prohibited by state-law fiduciary duty standards (emphasis added) and to take into account the interests of other parties (emphasis added) in addition to our interests when resolving conflicts of interest. Without these modifications, our Managing Partner’s ability to make decisions involving conflicts of interest would be restricted. These modifications are detrimental to our unitholders because they restrict the remedies available to our unitholders for actions that without those limitations might constitute breaches of duty, including a fiduciary duty (emphasis added), as described below, and they permit our Managing Partner to take into account the interests of third parties in addition to our interests when resolving conflicts of interest.”

The above warning would seem, in my opinion, be a deal-killer for leading fiduciaries. Then again, perhaps KKR’s “modification” of fiduciary standards is not as worrisome as it initially appears.

The following, says KKR, is a summary of the material restrictions on the fiduciary duties owed by its Managing Partner to unitholders.

Let’s begin with a summary of state law fiduciary duty standards.

“Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. In the absence of a provision in a partnership agreement providing otherwise, the duty of care would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. In the absence of a provision in a partnership agreement providing otherwise, the duty of loyalty would generally prohibit a general partner of a Delaware limited partnership from taking any action or engaging in any transaction that is not in the best interests of the partnership where a conflict of interest is present.”

What problem could KKR possibly have with an obligation to act in good faith, with due care and loyalty and in the best interests of the partnership where a conflict is present? Surely, any private equity firm wishing to be richly compensated for managing billions in public pension retirement assets would agree to such basic obligations. Apparently not.

“Our limited partnership agreement contains provisions that waive duties of or consent to conduct by our Managing Partner and its affiliates that might otherwise raise issues about compliance with fiduciary duties or applicable law. For example, our limited partnership agreement provides that when our Managing Partner, in its capacity as our Managing Partner, is permitted to or required to make a decision in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable” then our Managing Partner will be entitled to consider only such interests and factors as it desires (emphasis added), including its own interests (emphasis added), and will have no duty or obligation (fiduciary or otherwise) (emphasis added) to give any consideration to any factors affecting us or any limited partners, including our unitholders, and will not be subject to any different standards imposed by the limited partnership agreement, the Delaware Limited Partnership Act or under any other law, rule or regulation or in equity. In addition, when our Managing Partner is acting in its individual capacity, as opposed to in its capacity as our Managing Partner, it may act without any fiduciary obligation to us or the unitholders whatsoever (emphasis added).

These standards reduce the obligations to which our Managing Partner would otherwise be held.”

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